Income Tax Appellate Tribunal - Chandigarh
Budhewal Co-Operative Sugar Mills Ltd. vs Deputy Commissioner Of Income Tax on 20 March, 2003
Equivalent citations: (2005)94TTJ(CHD)307
ORDER
Joginder Pall, A.M.
1. This appeal of the assessee arises from the order of CIT(A), Ludhiana, for the asst. yr. 1995-96.
2. The first three grounds of appeal relate to same issue, i.e., that the CIT(A) was not justified in sustaining the order of AO for disallowing the claim of the assessee for deduction under Section 80P(2)(a)(iii) of IT Act. The facts of the case are that the assessee is a co-operative society engaged in the business of purchasing sugarcane from its members and manufacturing sugar therefrom. Though the assessee has been carrying on the same business for a number of years, yet the assessee, for the first time, claimed deduction in respect of its income under Section 80P(2)(a)(iii) of IT Act on the ground that the assessee was engaged in the activity of marketing of agricultural produce grown by its members. However, the AO noticed that the assessee was not engaged in the business of marketing agricultural produce of its members. It was purchasing sugarcane from the members and thereafter manufacturing sugar and other by-products, which were different from sugarcane purchased from the members. The assessee claimed that its activities of manufacturing sugar and other by-products from the sugarcane amounted to marketing of agricultural produce of the members, and, therefore, the case was covered under Section 80P(2)(a)(iii). The AO considered the claim of the assessee and held that the activity of the assessee was not one of the marketing of agricultural produce of its members rather the assessee was engaged in the processing of sugarcane and manufacturing sugar and other by-products. The end product manufactured by the assessee was not the same as agricultural produce of the members and, therefore, the assessee was not eligible for deduction under Section 80P(2)(a)(iii). The various judgments relied upon by the assessee were also distinguished by the AO. Thus, the AO disallowed the claim of the assessee.
3. Aggrieved, the assessee impugned the disallowance in appeal before the CIT(A). The assessee raised various contentions before the CIT(A) and also submitted the process-flow chart of the various activities undertaken by the assessee right from the purchase of sugarcane till the manufacturing of sugar and other by-products. It was submitted that the assessee purchased sugarcane from its members, transported to the factory premises, after weighing the same, sugarcane is crushed and raw juice is produced. The cleaning of raw juice is done in the process of manufacturing. Thereafter, raw juice is heated and various impurities cleaned. The clear juice is then passed on and the muddy juice is filtered. Thereafter, another heating takes place to clean the mud and through the subsequent operations the assessee manufactures the sugar and other by-products and molasses which is an exciseable item. Thus, the assessee submitted that all these activities right from the purchase of sugarcane to the manufacturing of sugar and molasses related to marketing of agricultural produce of its members and, therefore, the assessee was entitled to deduction under Section 80P(2)(a)(iii). The assessee had also relied on the various judgments. These submissions were considered by the CIT(A) but did not find favour with him. Learned CIT(A) held that sugar and other by-products manufactured by the assessee were different in character from the agricultural produce purchased by the assessee and, therefore, the assessee was not eligible for deduction, Relevant findings recorded by the CIT(A) in paras 5.2 and 5.3 of the impugned order are as under:
"5.2 In my opinion the first condition which has to be met is whether the income is being earned by the society from the marketing of agricultural produce. In this case the income cannot be held to be from the marketing of agricultural produce as such income is being realised from the sale of sugar. It is true for the purpose of manufacture and sale of sugar, the appellant uses agricultural produce, namely, sugarcane and it is not possible to produce sugar without this but a common practical view of the activity of the appellant would not suggest that it was marketing agricultural produce of its members. It was purchasing the agricultural produce, converting it into sugar, molasses and other by-products such as power and fertiliser, and selling the sugar and molasses derived from the sugarcane. Under no stretch of imagination can one say that these activities were entirely incidental or ancillary to the marketing of agricultural produce. In the case before the Supreme Court raw cotton was subjected to ginning and baling before being sold and the income came in the form of charges levied on the members as well as commission on sale of such cotton. In the present case the facts were entirely different. Sugarcane was being purchased outright from the members, converted into sugar and other by-products and the said by-products and sugar were being sold at the prevailing market price. Moreover, an attempt had also been made in the case before the Supreme Court to state that the ginning and pressing of cotton bales changed the character of cotton and, therefore, what was marketed was not the agricultural produce of the members of the assessee. This point was not permitted to be raised as it was stated that the Revenue should have raised it at an earlier stage. However, in the issue before me this point has been raised right from the start that the activities carried out by the appellant have changed the entire character of the agricultural produce.
5.3 The learned counsel for the appellant also stated before me that it was not possible to market sugarcane in any other manner than the one carried out by the appellant. This is entirely incorrect as even the learned AO had pointed out that sugarcane is primarily an agricultural product which is used not only for manufacture of sugar but to manufacture Gur (jaggery), Shakar and other Khandsari products. Sugarcane is also freely traded in metropolitan cities where petty vendors buy it from the market to be subsequently used for selling its juice in retail to customers. Sugarcane is also cut into small eatable that is normally liked by children. In fact, the sale of molasses is so far removed from agricultural that being a raw material for alcohol products, it is controlled by strict excise laws. Considering all the factors, I am of the opinion that the activities carried on by the appellant were neither incidental nor ancillary to the marketing of agricultural produce of its members. In fact, atleast the appellant was "processing" the agricultural produce and such activity would only qualify for exemption if it is carried out without the aid of power as per the provisions of Section 80(2)(a)(v). Taking all the above into consideration, I am of the opinion that the claim of the appellant cannot be accepted and this issue is decided against the appellant."
The assessee is aggrieved by the order of CIT(A). Hence, this appeal before us.
4. Learned counsel for the assessee, Shri N.K. Aggarwal, reiterated the submissions which were made before the authorities below. He submitted written submissions in the matter placed at pp. 1 to 7 of the paper book. He submitted that the provisions of Section 80P(2)(a)(iii) provide deduction in respect of income of co-operative society engaged in the business of marketing of agricultural produce grown by its members. He submitted that the expression 'marketing' used in the section means, transfer of goods from the point of agricultural production to the hands of the consumer. So long as the end-product which reaches the consumer is of an agricultural produce, the assessee will be entitled to special deduction. He submitted that marketing is a comprehensive term. It includes other connected activities necessary in marketing such agricultural produce. He referred to the judgment of Hon'ble Punjab and Haryana High Court in the case of Karnal Co-operative Sugar Mills Ltd. v. CIT (2002) 253 ITR 659 (P&H), which incidentally was also relied on by the learned Departmental Representative and the matter also stands decided against the assessee. Relying on the judgment of Hon'ble Supreme Court in the case of Kerala State Co-operative Marketing Fed. Ltd v. CIT (1998) 231 ITR 814 (SC), learned counsel submitted that term 'marketing' includes search, transportation, processing and other commercial activities. Thereafter, he drew our attention to the process-flow chart placed at p. 8 of the paper book. He submitted that the assessee is purchasing sugarcane from its members. Thereafter, the assessee carries on various manufacturing operations resulting in end-product of sugar and molasses, etc. He submitted that the end-product of sugar and molasses realised by the assessee remains an agricultural produce and the various operations carried on by the assessee, are only to make sugarcane marketable. Therefore, he submitted that the case of the assessee is squarely covered by the provisions of Section 80P(2)(a)(iii). Drawing our attention to the judgment of jurisdictional High Court in the case of Karnal Co-operative Sugar Mills Ltd. v. CIT (supra), learned counsel submitted that the facts of the case are distinguishable from the facts of the present case. He submitted that in the case before the Hon'ble Punjab and Haryana High Court, the issue related to Sub-clause (v) of Section 80P(2)(a), i.e., where the assessee, who was carrying on the processing of sugarcane being the agricultural produce of the members with the aid of power, was held to be not eligible for deduction. He submitted that the assessee's claim is covered under Sub-clause (iii) of Section 80P(2)(a). Thus, he contended that the judgment of jurisdictional High Court is not applicable to the facts of the present case.
5. Learned Departmental Representative, Dr. Rajiv Harit, on the other hand, heavily relied on the orders of tax authorities below. He relied on the judgment of Hon'ble Punjab and Haryana High Court in the case of Karnal Co-operative Sugar Mills Ltd. v. CIT (supra) and submitted that this judgment is directly on the issue. He submitted that the Hon'ble High Court has held that 'marketing' includes processing to make produce marketable but the processing should not involve use of power. Admittedly, in this case, the assessee has carried the processing with the aid of power, therefore, case of the assessee would not be covered under Sub-clause (v) of Section 80P(2)(a). He also submitted that the end-product, i.e., sugar sold in the market was not an agricultural produce grown by the members. Therefore, the assessee is not entitled to deduction under Section 80P(2)(a)(iii). He further relied on the judgment of Hon'ble Madras High Court in the case of CIT v. R.A. Virudhunagar Co-operative Marketing Society Ltd. (2002) 255 ITR 558 (Mad) where the Madras High Court has held that lint manufactured by the society was not an agricultural produce grown by its members and, therefore, the assessee was not entitled to deduction under Section 80P(2)(a)(iii). He further relied on the decision of Tribunal, Chandigarh Bench, in the case of Morinda Co-operative Sugar Mills v. Dy. CIT (2001) 73 TTJ (Chd) 87 : (2001) 78 ITD 189 (Chd) where on identical facts it has been held that the assessee is not entitled to deduction under Section 80P(2)(a)(iii). Thus, he submitted that the order of CIT(A) does not merit any interference.
6. We have heard both the parties at some length and given our thoughtful consideration to the rival submissions. We have also examined the facts, evidence and material on record. From the facts discussed above, it is obvious that the assessee is engaged in the business of purchasing sugarcane from the members and then processing the same and manufacturing sugar and other byproducts. Section 80P(2)(a)(iii) provides deduction in respect of income of CO-operative society engaged in the business of marketing of agricultural' produce grown by its members. Now, the question is whether the sugar and other byproducts manufactured by the assessee are the agricultural produce grown by the members though the end-products being manufactured by the assessee are out of the agricultural produce grown by the members. This issue came up before the Hon'ble Punjab and Haryana High Court in the case of Karnal Cooperative Sugar Mills Ltd. v. CIT (supra) where apart from taking the view that processing done by the assessee with the aid of power was not eligible for deduction under Sub-clause (v) of Section 80P(2)(a), Hon'ble High Court further held that the assessee manufactured and sold sugar which does not belong to the members. Sugar had not been described as an agricultural produce in the Act and, therefore, it cannot be said that the assessee was. marketing agricultural produce grown by the members. The assessee was not held to be entitled to benefit of deduction under Section 80P(2)(a)(iii). This judgment is directly on the issue and squarely applies to the facts of the present case. The assessee is also engaged in the business of manufacturing sugar. Therefore, the assessee would not be entitled to deduction under Section 80P(2)(a)(iii) as sugar does not belong to the members and is not an agricultural produce grown by the members. The judgment of Madras High Court in the case of CIT v. R.A. Vridhunagar Cooperative Marketing Society Ltd. (supra) also supports the case of the Revenue.
7. Besides, the same issue came up for consideration before Tribunal, Chandigarh Bench, in the case of Morinda Co-operative Sugar Mills v. Dy. CIT (supra) where detailed submissions were made on behalf of the assessee and the judgments relied upon by the learned counsel were also considered. After taking into account the rival submissions and the various judgments cited by both the parties, the Tribunal came to the conclusion that sugar manufactured by the assessee was not agricultural produce grown by the members and, therefore, the assessee was not entitled to deduction under Section 80P(2)(a)(iii). Relevant findings as recorded in para 5.1 of the aforesaid order are as under:
"5.1 It is observed that the basic issue before us is as to whether the agricultural produce retains the character of agricultural produce at the time of marketing thereof. Sub-clause (iii) of Clause (a) of Sub-section (2) of Section 80P reads as under:
'(iii) the marketing of the agricultural produce grown by its members, or' In the case before us, sugarcane is grown by members of the assessee-society, and it purchases sugarcane, and ultimately produces sugar. The crucial issue is whether at the time of marketing of sugar, the same could be treated to retain the character of agricultural produce grown by members of the society, or it represents a commercial commodity which no longer has the character of agricultural produce, Learned counsel has stressed that the words 'marketing of agricultural produce', even in the amended provisions, remain the same. Learned counsel has referred mainly to the decision reported in Asstt. CIT v. Ryots Agrl. Produce Co-operative Marketing Society Ltd. (1978) 115 ITR 709 (Kar), wherein the expression 'marketing' has been interpreted to mean 'the performance of all business activities involved in the flow of goods and services from the point of initial agricultural production until they are in the hands of the ultimate consumer'. It has been further observed that 'in order to make agricultural produce fit for marketing, it may have to be transported or processed, but all the activities involved are understood as amounting to a single activity, namely, marketing, and not independent activities such as transporting, processing, selling, etc. The marketing functions may involve exchange functions such as buying and selling, physical functions such as storage, transportation, processing and other commercial functions such as standardisation, financing, market intelligence, etc.' Learned counsel has further relied on the decision in (1998) 231 ITR 814 (SC) (supra), wherein the meaning given to the expression 'marketing' in (1978) 115 ITR 709 (Kar) (supra) has been reiterated. It has been observed that Section 80P was introduced with a view to encouraging and promoting the growth of the cooperative sector in the economic life of the country and in pursuance of the declared policy of the Government. It is observed that the main question before the apex Court was interpretation of the words 'produce of its members' as used in Sub-clause (iii) before its amendment in 1999 w.e.f. 1st April, 1968. It is observed at p. 820 of the report that 'so long as agricultural produce handled by the assessee belonged to its members, it was entitled to exemption in respect of the profits derived from the marketing of the same. Whether the produce came by the members because of their own agricultural activities or whether they acquired it by purchasing it from cultivators was of no consequence for the purpose of determining whether the assessee was entitled to the exemption. The only condition required for qualifying the assessee's income for exemption was that the assessee's business must be that of marketing, the marketing must be of agricultural produce and that agricultural produce must have belonged to the members of the assessee-society before they came up for marketing by it, whether on its own account or on account of the members themselves'--(emphasis italicized in print, supplied). Thus, it is clear that the apex Court has laid stress on the fact that marketing must be of agricultural produce. In the present case, it is not in dispute that sugarcane is grown by members of the assessee-society. We are only required to examine whether at the time of marketing of sugar whether the said commodity can be still treated as agricultural produce grown by members of the society. Learned counsel has also relied on the decision in (1990) 182 ITR 53 (P&H) (supra), wherein it has been observed that the term 'marketing' cannot be restricted to the buying and selling activity. It includes all activities connected with the process of taking over the agricultural produce of its members and handing over marketable commodities to the purchasers and all the intermediate processes connected with the marketing of the agricultural produce of the members. The jurisdictional High Court relied on the decision in CIT v. Karjan Co-operative Cotton Sale Ginning & Pressing Society Ltd. (1981) 129 ITR 821 (Guj). It referred to the Principle and Practice of Marketing in India by Dr. C.B. Mamoria and B.L. Joshi, and observed that classification of marketing functions were (1) activities involving transfer of ownership, i.e., buying and selling; (2) activities involving physical supply, i.e., transportation and storage; and (3) activities facilitating the foregoing functions, i.e., standardisation and grading, financing, risk taking and market research. Reference was made to the decision in (1978) 115 ITR 709 (Kar) (supra). It also referred to the decisions in CIT v. Kisan Co-operative Rice Mills Ltd. (1976) 103 ITR 264 (UP), CIT v. Mahasamund Kissan Co-operative Rice Mill & Marketing Society Ltd. (1976) 103 ITR 499 (MP), Keshkal Cooperative Marketing Society v. CIT (1987) 165 ITR 437 (MP) and CIT v. Indian Cared Clothing Co. (P) Ltd. (1977) 110 ITR 103 (Bom), as relied upon by. Revenue and observed that the concept of the term 'marketing' was not at all adverted to, which was fundamental to determination of issue raised. It thus answered the question in affirmative in favour of the assessee and against the Revenue. It is observed that HAFED had earned profit by sale of wheat, gram and other agricultural produce. Learned counsel has also referred to order dt. 15th March, 1997, in the case of Shahbad Co-op. Sugar Mills Ltd. for asst. yr. 1992-93 (supra), wherein CIT(A) examined the decisions reported in [(1978) 115 ITR 709 (Kar) (supra), Broach Distt. Cooperative Cotton Sale v. CIT (1989) 177 ITR 418 (SC), Chowgule & Co. (Hind) (P) Ltd. v. CIT (1990) 182 ITR 189 (Bom) and held that in order to make sugarcane, which is an agricultural produce, fit for marketing it has to be converted into sugar like oil from oil seeds and rice from paddy. He held that the entire business income of the assessee from manufacture and sale of sugar was exempt under Section 80P(2)(a)(iii). Learned counsel also referred to the decision in the case of Karnal Co-op. Sugar Mills Ltd. v. Dy. CIT (1999) 66 ITD 521 (Del), wherein the Tribunal observed that the assessee-society has not carried out the manufacture process of sugar out of sugarcane belonging to the members and selling sugar on their behalf in the open market, and charging the members only the manufacturing charges thereby passing on the remunerative price of its agricultural produce to its members. It observed that what the assessee-society had done was that it purchased sugarcane from its members as well as non-members at the same price fixed by the Government and the profit earned from manufacturing of sugar had been appropriated by itself instead of passing of its benefit to its members as per objects of its bye-laws which provided that the sugar shall be sold by the society to the best advantage of its members. It held that the profit derived from sale of sugar was not on account of marketing of sugarcane of its members but it was on account of manufacturing of sugar out of sugarcane purchased on its own account and accordingly the deduction claimed under Section 80P(2)(a)(iii) was not available to the assessee-society. Learned counsel has tried to take a plea that the said decision recognises the facts that sugarcane belonging to members if converted into sugar and marketed would be covered for the purpose of exemption under Section 80P(2)(a)(iii). After going through the aforesaid decisions, we feel that marketing of agricultural produce contemplated by Section 80P(2)(a)(iii), as amended retrospectively, must relate to agricultural produce as grown by members of the society. The main emphasis of the argument of learned counsel is on expression 'marketing'. It is observed from the decision reported in (1978) 115 ITR 709 (Kar) (supra) that in order to make agricultural produce fit for marketing, it may have to be transported or processed. They have held that activities of transporting, processing, selling constitute a single activity. They have observed that marketing functions may involve exchange functions, such as buying and selling, physical functions such as storage, transportation, processing and other commercial functions such as standardisation, financing, market intelligence, etc. The said decision has also been followed and approved in (1998) 231 ITR 814 (SC) (supra). We feel that while in the said decisions emphasis is on processing of agricultural produce so as to make it fit for marketing, the processing of agricultural produce cannot be further stretched to cover manufacture of an entirely different product. We feel that after manufacture of sugar, it ceases to retain the character of agricultural product, i.e., sugarcane grown by members of the society. We feel that the plea that sugarcane cannot be marketed except after conversion into sugar and, therefore, marketing should cover manufacture and sale of sugar, has no force. If so construed, then Sub-clause (iii) should perhaps have read as 'the marketing of any product manufactured or produced from agricultural produce grown by its members'. It is obvious that such an interpretation is not warranted on the plea of liberal interpretation. It may not be out of place to mention that sugarcane can be converted into a number of commodities, like Gur, Shakar, sugar, sugar candies and other by-products in the form of molasses, which attract a separate excise duty. The assessee has tried to rely upon the decisions where cotton seed was segregated and cotton in bales was treated as agricultural produce. We feel that in those cases the basic character of agricultural produce had been retained. It is also observed that the decision in Kishan Lal v. State of Rajasthan (1990) 183 ITR 433 (SC) relates to interpretation of various entries occurring in VIIth Schedule of the Constitution. The said case deals with principles of interpretation relating to legislative powers of the Parliament and of State legislature and, therefore, a wider meaning has to be assigned to the expressions used in Lists I-III of VIIth Schedule. In that context, it has teen held that agricultural produce would cover sugar manufactured in mills or factories and sugar so manufactured does not cease to be agricultural produce. We feel that the said principles of interpretation cannot be invoked in case of specific provisions dealing with exemption of income. In the case reported in 1994 (73) ELT 769, it is observed that such provisions have to be construed strictly at the stage of determination whether the assessee falls within its term or not and in case of doubt or ambiguity benefit of it must go to the State. We feel that if provisions of Section 80P(2)(a)(iii) were to be interpreted in a way pleaded by learned counsel, then the words 'marketing of agricultural produce' would not only cover processing of agricultural produce to make it fit for marketing but all manufacturing activities even if they result in manufacturing/production of entirely a new item, vis-a-vis agricultural produce originally grown by members of the society. We feel that such an interpretation would amount to importing of meaning into the provision, which was never intended by the legislature. We have, therefore, to strike a balance between adopting a liberal or strict interpretation, keeping in view the object of the provisions, so that no violation is done to the meaning of the words used in the provision. We may observe that in the decision reported in (1990) 182 ITR 53 (P&H) (supra), it has been observed at p. 57 that certain functions are connected with marketing, for example, buying and selling, transportation and storage, standardisation and grading, financing, risk taking and marketing research. The said activities in no way indicate that manufacturing activity like manufacture of sugar would be covered by the expression 'marketing of agricultural produce'. It may not be out of place to mention that HAFED was selling wheat, gram and other agricultural produce, Thus, on facts the said case is distinguishable. We may also mention that all the aforesaid decisions related to interpretation of words 'agricultural produce of its members' and it was held that the said words basically signify that agricultural produce belonged to members' of the society and they may not have thus grown the said agricultural produce. The expression 'marketing' was thus interpreted in the light of said provisions, which have now undergone a qualitative change in the sense that agricultural produce must be grown by members of society and at the time of marketing thereof, the basic characteristics of agricultural produce ought to be present. Once agricultural produce grown by members of society ceases to be an agricultural produce and takes shape of commercial produce in the form of sugar, the co-operative society would not be eligible for exemption on the plea that sugar so manufactured/produced remains an agricultural produce grown by members, Thus, on facts and in the circumstances of the case we feel that assessment order made by AO was erroneous and prejudicial to the interests of the Revenue. Accordingly, we uphold order of CIT under Section 263."
8. The above decision is also in the case of sugar mill and, therefore, squarely applies to the facts of the present case. Having regards to these facts and circumstances of the case and the legal position discussed above, and respectfully following the judgment of jurisdictional High Court in the case of Karnal Co-operative Sugar Mills Ltd. v. CIT (supra) and the decision of Tribunal, Chandigarh Bench in the case of Morinda Co-operative Sugar Mills (supra), we are of the considered opinion that the CIT(A) was justified in confirming the order of AO in disallowing the claim of the assessee for deduction under Section 80P(2)(a)(iii). We do not find any factual or legal infirmity in the order of CIT(A). The same is upheld and all the three grounds of appeal are dismissed.
9. The next two grounds of appeal relate to the issue that the assessee should be allowed deduction amounting to Rs. 4,09,38,147 representing the benefit earned under Sampat Incentive Scheme, 1987, being, a capital receipt. The facts of the case are that the assessee had not made such claim either before the AO or before the CIT(A). Such claim was also not made in the return of income. This claim has been made for the first time before the Tribunal. Learned counsel for the assessee had stated that under the Sampat Incentive Scheme formulated by the Government of India, Ministry of Food and Civil Supplies, New Delhi, the assessee was entitled to incentives from the Government for setting up a sugar factory and such incentive was to be utilised for repayment of loan to the financial institutions. A copy of the scheme, which was not submitted before the authorities below, has been placed before us at pp. 9 to 14 of the paper book. He also drew our attention to certificate issued by the Government of India, Ministry of Food and Civil Supplies, at p. 15 of the paper book as per which the assessee was entitled to the benefit of incentive scheme. He drew our attention to the decision of Tribunal, Allahabad Bench, in the case of Kisan Sehkari Chini Mills Ltd v. Dy. CIT copy placed at p, 27 to 32 of the paper book where the Tribunal has held that if the subsidy was given to recoup the revenue expenditure, it will take same colour and will be deemed to be revenue receipt in the hands of the assessee. It was the purpose for which such subsidy was given, will determine the character of the receipt. He further relied on the decision of Tribunal, Delhi Bench in the case of Modi Inds. Ltd. v. ITO (2002) 120 Taxman 55 (Del)(Mag) where it has been held that realisation through sale on additional free sale sugar quota released under Sampat Incentive Scheme was in the nature of capital receipt and not liable to tax. He further relied on the judgment of Hon'ble Calcutta High Court in the case of CIT v. Balrampur Chini Mill Ltd. (1999) 238 ITR 445 (Cal) where it has been held that surplus funds to be used only to repay the loan taken from financial institutions for expansion of plant, i.e., capital asset would be in the nature of a capital receipt. He further submitted that even though this issue was not raised before the authorities below, the assessee should be allowed to raise this additional ground. He also relied on the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (1999) 229 ITR 383 (SC) where it has been held that the assessee can raise an additional ground before the Tribunal for the first time. He further drew our attention to pp. 16 to 18 of paper book which is a copy of the order of CIT(A), Ludhiana, for asst. yr. 1992-93 where the claim of the assessee for treating the amounts received under the incentive scheme, has been held to be a capital receipt. He further drew our attention to CIT(A)'s order in the subsequent asst. yrs. 1996-97 and 1997-98 placed at pp. 19 to 26 of the paper book where similar claims of the assessee have been allowed in appeal. Thus, he submitted that relevant material is available on the file of the AO and the additional grounds, now being raised before the Tribunal should be admitted.
10. Learned Departmental Representative for the Revenue, on the other hand, strongly opposed the admission of fresh issue which was neither raised before the AO nor before the CIT(A). Referring to the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (supra), learned Departmental Representative for the Revenue submitted that the assessee is allowed to raise the additional ground only if the relevant facts are on record in respect of the issue covered under additional ground. He submitted that in this case, no such claim was made before the authorities below. In fact, a copy of the scheme and certificate issue by the Government of India, Department of Fertilisers, placed at pp. 9 to 15 of the paper book were not even produced before the AO. Moreover, referring to para 7 of the scheme, learned Departmental Representative for the Revenue submitted that the case requires detailed examination as to the nature of receipt before determining as to whether the same was on capital account or revenue account. The assessee is also required to furnish a certificate of chartered accountant about the utilisation of amount received. Thus, it cannot be said that the relevant facts for admission of fresh grounds are already on record. He further relied on the judgment of Hon'ble Supreme Court in the case of Addl. CIT v. Gurjargravures (P) Ltd. (1978) 111 ITR 1 (SC) where the Supreme Court has held that in a case where the assessee had not made any claim before the AO nor was there any material on record in support thereof, and the mere fact that such claim had been allowed in subsequent years, it could not be assumed that the prescribed conditions justifying the claim for exemption under Section 84 were fulfilled. Therefore, the Tribunal was not competent to hold that the AAC should have entertained question of relief or to direct the ITO to allow the relief. He further relied on the judgment of Hon'ble Allahabad High Court in the case of CIT v. G.S. Rice Mills (1982) 136 ITR 761 (All) where the AAC had rejected the claim of the assessee for relief under Section 80J on the ground that no such claim was made either in the returns filed or in the assessment proceedings before the ITO nor was there any material on record supporting such a claim, the Tribunal was not justified in entertaining the claim of the assessee for relief under Section 80J and directing the ITO to examine the claim of the assessee on merits. Thus, he submitted that since such claim was not made before the authorities below and the material facts were not on record the assessee cannot be allowed to raise such plea before the Tribunal. Relying on the judgment of Hon'ble Delhi High Court in the case of Gedore Tools (P) Ltd. v. CIT (1999) 238 ITR 268 (Del), learned Departmental Representative for the Revenue submitted that for raising additional ground, the assessee is required to establish that ground raised is bona fide and the same could not have been raised earlier for good reasons, and the facts required for answering the new plea are available on record in the assessment proceedings. He drew our attention to subsequent decision of Tribunal, Madras Bench, in the case of Ghengalrayan Co-operative Sugar Mills Ltd. v. Dy. CIT (1998) 60 TTJ (Mad) 734 : (1998) 65 ITD 475 (Mad) where the Tribunal has observed that the assessee received incentive from the Government in form of higher percentage of levy free sugar quota and excise duty concession, on condition that surplus funds, thus generated be utilised for repayment of term loan of financial institutions is an amount to recoup the revenue expenditure is, therefore, a revenue receipt. Drawing our attention to the observations made by the AM, learned Departmental Representative for the Revenue submitted that there was no. evidence to show that the surplus funds realised by the assessee as a result of excess price of free sale of sugar charged from dealers/customers and surplus of excise duty realised due to less payment of Government was utilised by the assessee for repayment of loans from the financial institutions, Therefore, until those conditions are satisfied, the receipt in question cannot be treated as capital receipt. Thus, he submitted that it is not automatic that whenever any amount is received under the aforesaid incentive scheme, the same would automatically be treated as a capital receipt. He further submitted that as regards the orders of the CIT(A) for other assessment years the Revenue has already filed the appeals before the Tribunal and the decisions of CIT(A) have not been accepted. Thus, he submitted that the assessee cannot be allowed to raise such plea before the Tribunal which was never raised before the authorities below.
11. We have heard both the parties and carefully considered the rival submissions with reference to facts, evidence and material on record. From the facts discussed above, it is obvious that neither in the return of income nor during the course of assessment proceedings/appellate proceedings, the assessee had made a plea for exemption of such income on the ground that the same was a capital receipt. A copy of the scheme placed at pp. 9 to 14 and a copy of the certificate issued by the Central Government were also not submitted before the authorities below. In the case of Sahney Steel Works Ltd. v. CIT (1997) 228 ITR 253 (SC), Hon'ble Supreme Court has held that it is not the source from which the amount is paid to the assessee, which is determinative of the question whether the subsidy payments are revenue or capital in nature. If the payments in the form of subsidy are made to the assessee to assist him in carrying on his trade or business, these are trade receipts and liable to tax. The character of the subsidy in the hands of the recipients whether the Revenue or capital will have to be determined by having regard to the purpose for which the subsidy is given. If the subsidy has been given for production or bringing into existence any new asset before setting up a new industry, the same would fall in the nature of capital receipt. Thus, that amount of subsidy received from the Government would automatically fall in the nature of capital receipt. The issue requires to be examined in the light of the' scheme and with reference to nature of receipt, and utilisation thereof. All these issues need to be examined by the AO by calling for the details which are not on record. Therefore, first issue that requires to be decided, is whether the assessee can be permitted to raise such issue before the Tribunal for the first time which had not been raised before the authorities below. No doubt, Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (supra) has held that the assessee is permitted to raise the additional ground before the Tribunal for the first time, so long as the relevant facts are on record in respect of the issue in question. In this case, relevant facts are not on record. As regards the contention of learned counsel for the assessee that the facts of the scheme for subsequent years are on record, the Supreme Court in the case of Addl. CIT v. Gurjrargravers (P) Ltd. (supra) has held that from the fact that the claim now made before the Tribunal was allowed in the subsequent years, does not mean that the prescribed conditions necessary for justifying the claim would automatically be considered as fulfilled for the earlier assessment years, Relying on the same judgment, Allahabad High Court in the case of CIT v. G.S. Rice Mills (supra) has held that in a case where relief has not been claimed in the return of income or during the course of assessment proceedings, the Tribunal cannot entertain such issue for the first time and direct the AO to examine the claim on merits. In the light of facts and legal position discussed above and the reason that this claim was not made before the authorities below, and the relevant material necessary for allowing such claim is not on record, and by relying on the judgment of Hon'ble Supreme Court in the case of CIT v. Gurjrargiavers (P) Ltd (supra), we are of the considered opinion that such ground cannot be entertained at this stage. Therefore, both the grounds are rejected.
12. The last issue raised in this appeal relates to sustaining of disallowance of Rs. 50,838 of the guest house expenses. The facts of the case are that in the return of income the assessee had claimed deduction for guest house expenses. However, by referring to the provisions of Section 37(4) of IT Act, the AO held that expenses incurred on account of salary paid to watchman, cook, depreciation on furniture and fixtures, kitchen articles, cannot be allowed as deduction. Therefore, the AO disallowed expenses of Rs. 50,838. On appeal, the CIT(A) upheld the disallowance. The assessee is aggrieved by the order of CIT(A). Hence, this appeal before us.
13. The attention of the learned counsel for the assessee was drawn to the recent decision of Special Bench of Tribunal, Delhi, in the case of Eicher Tractors Ltd. v. Dy. CIT (2002) 77 TTJ (Del) 681 : (2003) 84 ITD 49 (Del) where the Tribunal by referring to the provisions of Sub-sections (4) and (5) of Section 37 relating to disallowance of guest house expenses, has held that Sections 30, 31 and 32 are general in nature and therefore, the provisions relating to disallowance of guest house expenses shall prevail. Thus, the Tribunal has held that the assessee would not be entitled to claim any deduction for the guest house expenses on account of rent, repairs, depreciation and maintenance. Learned counsel for the assessee submitted, while taking such view Special Bench of Tribunal, Delhi, has referred to legislative intent for curbing lavish expenditure on the maintenance of guest houses. However, he submitted that subsequently provisions of Sections 37(4) and 37(5) have been deleted. Therefore, it shows the legislative intent that such expenditure is necessary for carrying on the business.
14. Departmental Representative for the Revenue simply relied on the order of Tribunal (SB), in the case of Eicher Tractors Ltd. Ltd. v. Dy. CIT (supra).
15. We have heard both the parties and carefully considered the rival submissions. As mentioned above, it is obvious that this issue is squarely covered by the decision of Tribunal (SB), Delhi, in the case of Eicher Tractors Ltd. v. Dy. CIT (supra) whereby referring to the provisions of Sub-sections (4) and (5) of Section 37, the Tribunal has field that the assessee is not entitled to claim deduction of the expenses incurred on guest house. Respectfully following the aforesaid order of the Tribunal, we uphold the order of CIT(A) and dismiss this ground of appeal of the assessee.
16. In the result, appeal filed by the assessee is dismissed.